Optimal Grading Policies in the Online Acquisition of Used Products

Abstract

Although online reverse commerce (recommerce) is convenient and efficient, it is not without caveats. It limits recommerce firms’ flexibility to offer personalized prices and may cause mismatched grading between the firms and sellers of used products. This study examines a recommerce firm’s decision on grading criteria and prices. We find that the firm’s optimal policy exhibits two distinctly different patterns depending on the trade value of the product. We demonstrate that sellers’ overestimate and underestimate errors have qualitatively different effects on firm profitability, and the effects crucially rely on the type of optimal policy. These findings can apprise firms on how to preset sorting criteria and prices as well as reduce grading errors.

Keywords

Closed-loop supply chains / used-product acquisition management / recommerce / grading error / grading policy

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